s052017

Reports
THE GM'S
REPORT
ALEX MAGGIACOMO / GENERAL MANAGER
Debt - Golf's Other Four-Letter Word
Even in today's low interest rate
environment, it is important to
understand the opportunities and
potential perils of debt. Most of us
assumed a large personal debt when
we bought our first home. Generally
speaking, this is not considered
irresponsible and usually works out
well. Of course, the goal in that case is
to one day be debt free. Many
members that I talk to make the
reasonable assumption that our club
should have the same long-term plan to
one day be debt free. I'd like to take a
moment to explain how our club
utilizes debt responsibly to enhance
your membership experience today,
effectively increasing the value that you
get for the price that you pay each year.
It is an approach that dates back to the
club becoming equity in 1999 and it has
worked brilliantly on a number of
occasions.
When the membership purchased the
property from the Ontario Government,
the Club took on debt to do that. When
we hired Tom McBroom to renovate the
course, we took on debt to do that.
When the clubhouse and practice
facility were built, we took on debt. So
you are starting to grasp our model
now: we take on debt to do large
capital projects, and we work to pay
down that debt so we can then borrow
again and do more capital projects.
This is not a bad a thing. I mean, it's not
the '80s when my parents tell me stories
of paying interest of 18-22% on their
mortgage. Today, borrowing money is
cheaper than it has ever been, but of
course we still need to be responsible
with how much debt we take on.
At the 2016 Annual General Meeting,
our Finance Director spoke about a
debt servicing fee. This is the fee you as
an Equity member pay to service our
debt. That fee sits at $600 this year. Even
before my time at Whitevale, the
members had been paying a debt fee in
some form (fluctuating between $500
and $640 per year). Over the years, the
Club has tried various ways to make this
payment as easy as possible for the
members. We have tried payments in
two installments, then six installments,
all up-front payments, and we have
concluded that adding the debt fee to
your annual dues works best for the
member and the Club.
All the way back in 2007 when the
course construction was nearing its
end, the Board of Directors at that time
made a very smart decision. Instead of
locking the full $3M of debt into a
traditional mortgage (as was done in
the past), they took on a $1M mortgage
and $1.75M line of credit (LOC). This
meant that we had monthly payment of
interest and principal on the $1M
mortgage while the other debt (an
operating line) would get paid down
every January with the collection of our
annual dues. As the Club spent money
throughout the season, we then paid
interest only on that accumulating
amount. This concept saved the club
over $85K during the term of this debt.
We know this model works, so why
change it? Fast forward to the end of
the clubhouse construction… In 2015,
we moved into the new clubhouse and
converted the construction loan to a
long-term debt facility. Using the same
model as 2007, we negotiated a $3M
traditional term mortgage for 60
months to be renegotiated in 2019, and
a $2M LOC (the most we could
negotiate for the LOC). Although our
total debt remained the same, having
more debt by way of operating line
helps to save on interest by managing
seasonal cash flows.
In 2016, the last of the land sale closed
and we collected $1M for this. The
intent is to use this money for the turf
care facility and you will be asked to
approve this expense via a full
membership vote later this year. Of
course, we have collected these funds in
advance of spending them on the turf
facility, so Whitevale is currently saving
thousands of dollars in interest charges,
as a result.
In 2017, we will collect $600 from each
of the 531 Equity members for a total of
$318,600 to service our two debt
facilities, the mortgage and the LOC.
At the start of fiscal 2017 (which began
last November) our total long-term
debt was $2,855,657. We will make
payments on this loan totaling
$215,000 this year, reducing this longterm
debt to $2,748,482 at the end of
this fiscal year.
3 / WHITEVALEGOLFCLUB.COM / MAY 2017